When you’re on the hunt for a home loan, prioritising a competitive interest rate is a no-brainer. But while some home loans can look perfect on paper, there are more ways to nab a bargain than looking for a low rate.
In Australia, a cheap home loan is typically seen as one that saves you money in your home loan repayments. But there is more than one way to save when it comes to your home loan, including saving on time spent repaying a loan, and saving on additional costs, like fees.
This is why it’s important to consider home loans that reduce the fees you pay, offer flexible features, lock you into the right loan term and even come from the best lender for your goals. Let’s explore all the ways that a cheap home loan could benefit you, and why this means looking at more than just the interest rate offered.
How a cheap home loan could help you
It’s important to keep in mind that the “best” or “cheapest home loan” for an Australian borrower may not be the cheapest for another, based on their specific financial circumstances and property goals.
That being said, home owners considering refinancing, investors looking to reduce expenses, or first home buyers trying to lower their repayments, may want to compare more than just the interest rate advertised.
1. It does not charge you high, or multiple, fees
It’s not just the interest rate of a mortgage you need to be comparing, but the fees and ongoing costs associated with the loan.
- Upfront fees, like loan application fees, mortgage registration fees and search processing fees.
- Ongoing fees, like account-keeping fees, annual fees, late payment fees, redraw fees and portability fees.
- Exit fees, like break fees when leaving a fixed rate loan period early and discharge fees.
Over a 20-30 year loan term, these fees can seriously add up. For example, if a home loan charges a $350 annual fee, over a 30-year home loan that equates to an extra $10,500 into the pockets of your bank.
When you’re trying to nab a cheap home loan, it may be worth comparing options that offer fewer fees. Some may even waive ongoing fees, like annual fees, so it’s worth doing your research. For example, Reduce Home Loans Economizer Variable home loan currently does not charge eligible customers annual fees or monthly fees.
Take stock of the fees the lender may charge instead of just focusing on the rate. Start by looking at the product disclosure statement (PDS) for more details.
2. It offers you competitive features
Home loan features, like an offset account, redraw facility, or the ability to make extra repayments can be helpful tools that assist you in keeping costs down in the long run – even with a higher interest rate. If you’re in a rising interest rate environment, having the flexibility to reduce your repayments could be worth prioritising in your comparison.
While ‘no-frills’ mortgages may offer cheaper advertised home loan interest rates, these lenders typically keep costs down by not offering you flexibility in the form of features. When you’re hunting for a cheaper home loan, it may be worth considering home loans with features, as they may allow you to reduce your interest charges or the loan amount owing. For instance:
- Offset account – The funds you deposit into an offset account may help to reduce the total interest repayments. For example, on a $500,000 home loan balance with $50,000 in an offset account, you may be charged interest as if the balance was $450,000.
- Extra repayments – Any additional repayments you make into your home loan work to chip away at your principal owing, reducing your repayments and the amount of interest you’d otherwise pay over the life of the loan.
- Redraw facility – The extra repayments you make may be stored in a redraw facility, to be accessed if needed for events like a home renovation, or a family holiday. The extra payments you make will also work to reduce your interest charges similarly to an offset account.
Finding a home loan with a lower interest rate shouldn’t mean you have to compromise on helpful features, like the above. Not only does Reduce Home Loans offer some of the most competitive home loans around, every mortgage offered by Reduce Home Loans comes with an offset account and/or redraw facility.
3. It lets you choose your loan term
A cheap home loan may also mean one that allows you to choose the loan term that works best for your goals. The standard home loan term is around 20-30 years, with some lenders offering terms up to 40 years. The longer your home loan term, the smaller your monthly repayments will be as this debt is spread out over a longer period.
This is a common strategy some first home buyers use to make their repayments cheaper after squeezing all their savings to get a foot on the property ladder. However, the longer you repay a home loan, the more interest you will have to pay over time.
If your idea of a “cheap home loan” is one that saves you your time spent repaying the mortgage, it may be worth considering budgeting for higher monthly repayments and choosing a shorter loan term.
The additional benefit of a home loan with a shorter loan term is that it may help save you tens of thousands of dollars in interest charges. For example, on a hypothetical $500,000 home loan at a rate of 3%, here is how much interest you could pay on different loan terms:
|Home loan term
|Total interest paid
Note: Hypothetical example for demonstrative purposes only. Based on a $500k home loan at a rate of 3% repaid over different loan terms. Does not factor in any fees or rate changes over loan terms.
Even opting for a 25-year term over a 30-year term could cost you around $250 more a month, but it will save you almost $50,000 in interest charges over the life of the loan.
4. It’s from the right lender
Finding a cheap home loan doesn’t mean a great deal if you bank with a lender that doesn’t suit your needs. It’s important that you consider a home loan lender that doesn’t cost you more in terms of your time and energy, not just your money.
If you rely on face-to-face customer service, for example, choosing a home loan lender that is entirely app-based may not be the right fit. Or if you love innovative fintech and the latest tools, an online lender may be better suited to provide this value to you, as they can be quicker to roll out new ideas than bigger banks.
5. It covers the cost of a refinance
Switching home loans can be one of the best ways homeowners can give themselves a rate cut, particularly if you’re considering one of Reduce Home Loans competitive refinancing home loans.
That being said, refinancing does generally incur some costs, such as application fees to a new lender, discharge fees or break fees if you’re leaving a fixed rate period early. For some refinancers, a ‘cheap home loan’ may be one that offers them a generous cashback deal to cover the cost of switching.
Cashback deals come in the form of funds in your account, a reduction to your mortgage or even as gift cards, in some instances. At Reduce Home Loans, we offer between $2,000 – $10,000 in cash back deals to eligible customers, depending on the value of the property. Not only may this cover refinancing costs, but any funds left over may be put towards a new appliance for the home or property repairs.
It’s only natural to want the cheapest home loan for your property, but it’s important to define what exactly “cheap”, or affordable, means for you. Every homeowner is in a different financial situation and has individual goals. By identifying what is important to you, whether it be saving yourself in interest charges or paying your loan off faster, you will be in a better position to find your best home loan.
To compare some of the record-breaking lower-rate home loans from Reduce Home Loans, or for more information on how you can nab a cheap mortgage, don’t hesitate to reach out today on 1300 733 823.
Any statements are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.